Pak to start withdrawing fuel subsidies from July 1

Islamabad, Jul 1: The Pakistan government, which is already facing a precariously pitted economy with a huge budget deficit, seems to have no option but to withdraw subsidies on petrol, diesel and kerosene, like India did last month, and let the increase price of crude oil in the international market be passed on to the end consumers.

In a bid to check its swelling budget deficit, the Pakistan government will begin withdrawing fuel subsidies from July 1, the first day of Pakistani financial year, ft.com quoted senior federal government officials as saying.

To bring it into line with international oil prices, Pakistan would have to raise the price of petrol by only about 20 per cent, the officials said, and added that it was not possible to control the budget deficit without cutting down fuel subsidies and passing the increased crude oil prices on to the consumers.

The government spent 2.4 billion dollars during the fiscal year ended Monday, in order to subsidise domestic fuel prices and protect consumers from a sharp rise in global oil prices, reported ft.com.

But, this has resulted in a sharp increase in the budget deficit, which is expected to reach about 6.5 per cent of gross domestic product, leading to a rethink by government ministers, it added.

"The deficit is unsustainable. We have to pass on all the increase in fuel prices to our consumers. By December 2008, there [will] be no fuel-related subsidies in Pakistan," the website quoted a Pakistan minister as saying.

The plan for a phased end to subsidies was confirmed by several other senior officials too.

Prices of diesel and kerosene, which are used by far more people, would have to be raised by far more, potentially provoking political unrest. The price of diesel would have to be raised by 55-58 per cent while kerosene would have to be raised by 75-80 per cent, officials said.

According to the report, the oil price hikes could have a political cost for the coalition government which is already facing an Islamic insurgency and disquiet over food price rises.